A Franchise Operations Manual is the franchise business’ bible, commanding how its franchisees must run their day-to-day operations, from presentation, marketing, reporting, and even the offering of fries with that. Further, those commandments can change, and it is commonplace for franchisors to amend the terms of the manual frequently and during the term of most franchise agreements.
But are those changes legally enforceable? Here are some factors that will be relevant when answering that question.
Terms of the franchise agreement
It is commonplace for updates to an operations manual to be made binding by a term of the franchise agreement that permits franchisors to make such a change and enforce them. The extent to which they are enforceable will be dependent on the precise wording of such a clause and the applications of the Franchising Code of Conduct (“the Code”).
Notice of change
Franchisors must act in good faith, and it is commonplace for ‘reasonable notice’ to be required before any substantial change is enforceable. What is ‘reasonable’ will depend on the nature of the change, the number of franchisees and the cost of implementation. Sometimes, the franchise agreement contains a provision to the effect that the franchisor will provide written notice of any changes. The franchisee will be taken to accept these changes after a certain period, say 14 days, unless he or she formally objects in writing.
Disclosure of any foreshadowed cost
The Code now requires disclosure of all costs that the franchisor could reasonably expect the franchisee to meet, or potentially meet, during the term of the agreement. If the costs of implementing a change set out in or enforced via the operations manual are substantial and not disclosed, it is questionable whether such proposed change could be enforced.
Reasonableness of the content
Arguably, the requirements in the operations manuals must be reasonable, and the franchisor must make them in circumstances where he or she considers all parties’ interests. If not, there is certainly room to argue that the franchisor is acting contrary to its statutory obligation of good faith per the Franchising Code of Conduct.
Usually, a Franchise Operations Manual is much more than just a user guide or instruction manual. Rather, it forms a binding contract between the franchisor and franchisee. The extent to which this is the case will depend on the factors above, and how the franchisor uses its ‘right’ to implement change or enforce the manual’s contents.
If you wish to query or challenge certain sections of the operations manual, you should first talk to a franchise lawyer who will be able to advise you on the factors above.
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